The September CPI: All Energy

October 14, 2005 – The U.S. Consumer Price Index (CPI)
shot up by 1.2% in September, spurred by a 12% leap in
consumer energy prices. This was the largest monthly increase in
25 years (Chart 1).

Energy prices have been pushing the CPI notably higher in each
of the last three months. However, all of this extra price growth
has been confined to the energy sector.

Excluding energy, the CPI rose by 0.2% in September (+0.1% in
August), while the closely-watched core CPI (excluding food and
energy) edged up by a meager 0.1% for the fourth straight month
(Chart 2).

In the bigger picture, the CPI rose by 4.7% in the twelve
months through September, accelerating from the 3% trend that
prevailed earlier this year (Chart 3).

In contrast, the core CPI rose by only 2% over the last twelve
months, and it has been on a relatively steady trend since early
2004.

As reconfirmed by the minutes of the September FOMC meeting
(released earlier this week), the FOMC won’t react to
rising energy prices unless they seem to be causing a
broadly-based acceleration in consumer price growth. The
stubbornly tame trend in core CPI growth suggests that this was
not the case in September.

Thus, these data favor a steady course in U.S. monetary policy
– namely, another “measured” 25 basis-point
increase in the target Fed funds rate at the FOMC’s next
policy meeting on November 1.